SAIT Commentary on draft 2 of the new dispute resolution rules under section 103 of the TAA

SAIT
provided commentary on Draft 2 of the new dispute resolution rules under section
103 of the Tax Administration Act. These rules prescribe the procedures to be
followed in lodging an objection and appeal against an assessment or a decision
subject to objection and appeal referred to in section 104(2), procedures for
alternative dispute resolution, the conduct and hearing of appeals before a Tax
Board or Tax Court and transitional rules.

The submission follows below:

RE: CALL FOR COMMENT: DRAFT 2 FOR PUBLIC COMMENT OF DRAFT
RULES TO BE PROMULGATED UNDER SECTION 103 OF THE TAX ADMINISTRATION ACT, 2011 (‘TAA')

Thank you for the
opportunity to contribute commentary and assist in developing the Rules in
terms of section 103 of the Tax Administration Act. We set out below first the
issues there were previously included in our submission that have not been
taken into consideration in the second draft as well as other new issues that
have come to our attention.

1
PREVIOUS COMMENTS PROVIDED – NOT INCLUDED IN DRAFT 2

We are of the
opinion that the following comments made in our previous submission have merit
and should still be taken into consideration before finalizing the legislation:

1.1 Concern regarding completeness of the definition
of "assessment”

Problem statement:

The definition of "assessment” in the current rules does not appear to
include reference to other decisions made by SARS that are not subject to
objection and appeal in the TAA.

Proposed solution / recommendation:

Inclusion is warranted in terms of the principles laid down in KBI v Transvaalse Suikerkorperasie Bpk
47 SATC 34 where it was held that any decision is subject to review in the Tax
Court.

1.2
Rule 9: Decision on
objection

Problem statement:

Rule 9 provides for the allowance or
disallowance of the objection,
without requiring
SARS to provide reasons for this decision.

Proposed solution /
recommendation:

In terms of section 33 of the Constitution of
the Republic of South Africa, 1996 (‘the Constitution') everyone has the right
to administrative action that is lawful, reasonable and procedurally fair.
Accordingly, in terms of section 5 of the Promotion of Administrative Justice
Act (PAJA) an administrator, including a SARS official, is required to furnish
adequate reasons for an administrative action. In practice, should a taxpayer
request reasons for the disallowance of an objection, SARS provides these
reasons. This practice could be construed as a practice generally prevailing.It
is submitted that the decision to disallow an objection is administrative
action that affects the rights of a taxpayer. We recommend that the rule be
amended to require SARS to provide adequate written reasons for any
disallowance of an objection.

The effect of SARS not providing reasons
for the disallowance of an objection is that when a dispute reaches the hearing
stage and the taxpayer is required to deliver a statement of the ground of
appeal (see point 4 below), the taxpayer is severely disadvantaged because
he/she has only been furnished with reasons for the assessment – not the
disallowance of the objection.

In practice, even when SARS does provide
reasons, such reasons are often not adequate. For instance, declaring
that an accrual is deemed to be of a revenue nature and not capital, without
stating why, makes it very difficult for a taxpayer to prepare his or her
case. Similarly, a statement that a taxpayer does not meet the
requirements of a certain provision is of no help when SARS does not indicate
specifically which requirements were not met and why.The restrictive
interpretation of "adequate reasons” in CSARS v Sprigg Investment 117 CC t/a
Global Investment [2011] 3 All SA 18 (SCA) does not aid the taxpayer in this predicament.

If the Rules are not amended to require
SARS to provide adequate reasons for the disallowance of an objection, such
taxpayer's may seek recourse by requesting the reasons in terms of section 5 of
the PAJA and, should SARS fail to do so, institute proceedings in terms of
section 6 of that Act for judicial review.Section 34 of the Constitution
may also provide recourse if it can be proven that the taxpayer has been denied
his/her right to a fair trial.

From a practical point of view, a taxpayer
might even decide not to proceed with an appeal if the reasons provided by SARS
for the disallowance are adequately detailed and convincing; avoiding the need
for ADR or a hearing. It is thus submitted that SARS be required to first provide a
taxpayer with reasons for an assessment before the taxpayer has to provide SARS
with a "statement of grounds of appeal” – see next point.

1.3
Part B, Rule 10: Appeal
against assessment

Problem statement:

Once an appeal has
been noted by a taxpayer, the taxpayer is in terms of the new draft rules
required to provide SARS with a "statement of grounds of appeal” before SARS provides the taxpayer with
a "statement of grounds opposing an appeal”. This is opposite to how the
current rules operate where SARS is under the obligation to first provide a
taxpayer with a "statement of assessment” before the taxpayer has to provide
SARS with a "statement of grounds of appeal”.

This change will no
longer provide the taxpayer with an opportunity to understand what SARS' case
is in respect of an assessment. SARS' reasons provided for an assessment (if
requested from SARS after raising the assessment in terms of Rule 6), will be
the only information that the taxpayer has to rely on.

Proposed solution /
recommendation:

The reasons provided
by SARS are often inadequate and not of a detailed nature as mentioned above
and it is thus submitted that this proposed change will put the taxpayer at a
severe disadvantage and needs to be amended. It is proposed that the current
rules be retained (and the proposed amendments be disregarded) so that SARS is
required to provide the taxpayer with a "statement of assessment” before the
taxpayer is required to provide SARS with a "statement of grounds of appeal”.
This will aid the taxpayer in understanding what SARS is disallowing/taxing, thereby
ensuring that the taxpayer can appropriately address the issues under appeal.

1.4
Part B, Rule 12: Test
cases

Problem statement:

The new rules make
provision for "test cases" introduced by section 106(6) of the TAA.
According to this section, where the determination of an objection or appeal is
likely to be determinative of the issues involved in one or more other objections
or appeals, SARS may designate the case as a 'test case'. Taxpayers are not
afforded the opportunity to request their case to be regarded as a ‘test case'.

Proposed solution /
recommendation:

Due to the huge
costs that are involved in taking a matter to Court, (especially if SARS will
appeal against an unfavourable decision) individual taxpayers are not in a
position to take a matter to court. In situations where there are similar
circumstances experienced by various taxpayers, it would be recommended that
taxpayers be afforded the opportunity to request a ‘test case' that is funded
by SARS. This is to avoid a multiplicity of actions and the waste of costs that
will go with such actions on the same issue.

In this regard,
SARS should consider following the Australian Tax Office's ‘Test Case
Litigation Program' where the ATO provides financial assistance to taxpayers
whose litigation is likely to be important to the administration of the
country's revenue system. The aim of the program is to develop legal precedent
- that is, legal decisions that provide guiding principles on how specific
provisions administered by the revenue authority should be applied more
broadly.

·
the issue is of significance to a
substantial section of the public or has significant commercial implications
for an industry, and

·
it is in the public interest for the issue
to be litigated.

A test case
litigation panel (the panel) should be formed to provide independent views on
the merits of cases and on the significance of issues to the community. The
panel should consist of accounting and legal professionals and senior tax
officers. The panel should consider applications in light of the program's
criteria and should recommend whether or not funding is appropriate.

The funding of these
cases by SARS would ultimately be in the best interests for all and would help
to ensure that the cases proceed to hearing and are decided as soon as possible.

2
NEW COMMENTS PROVIDED

2.1
Rule 1: Definition
of "deliver”

Problem statement:

2.1.1. In certain
instances when SARS has issued an assessment on efiling, the taxpayer and/or
generally the tax practitioner assisting the client is/are not notified that
the assessment has been issued. Taxpayers and their tax practitioners are thus
not aware of the assessment unless they regularly log into their efiling
profiles and check for any assessments that have been recently issued.
Regularly checking whether assessments etc. have been "delivered” by SARS is
not practical for either the taxpayer or the tax practitioner (that would, in
most cases, need to do this from numerous clients). The definition of "deliver”
does not require SARS to provide notification of the assessment being issued to
the taxpayer/tax practitioner which could lead to frustrations being
experienced by taxpayers and tax practitioners, and in certain instances might
lead to late objections and payments being made.

2.1.2 There
currently appears to be inconsistent treatment by different SARS branch offices
with regard to the ”delivery” of objections to an assessment submitted by a
taxpayer/tax practitioner. Certain branches permit the delivery either by hand
or email whereas other branches have indicated that any form of delivery other
than efiling is invalid. The latter treatment is not supported by the
legislation and furthermore, causes practical difficulties for tax
practitioners that merely assist taxpayers with objections and appeals as they
do not have access to the taxpayer's efiling profiles as they do not submit
their client's returns/payments etc.

Proposed solution /
recommendation:

2.1.1. The definition of "deliver” under paragraph (b) should be
expanded by requiring SARS to notify the tax practitioner (should a tax
practitioner have lodged the underlying return in relation to which is a
dispute has been lodged) or the taxpayer (in cases where a tax practitioner has
not lodged the underlying return) of the posting of the assessment on efiling.
This notification should be done by means of electronic mail on the date of the
posting of the assessment by SARS on efliling.

2.1.2. The definition of "deliver” clarifies the acceptable manner of
delivery by a taxpayer/tax practitioner of an objection to an assessment. SARS
branch offices should be made aware of the alternatives of delivering the
objections to ensure consistent treatment amongst the various SARS branch
offices.

2.2
Rule 2: Date
of delivery

Problem statement:

Rule 2(2) provides
for two separate dates of delivery, one for SARS and another for the
taxpayer.
Where the taxpayer is the
recipient, the date of delivery is the date SARS remits or sends the document.
If SARS is the recipient, the date of receipt
is the date of delivery.
In the case of
personal or electronic delivery, this does not make much of a difference.
However, if a party makes use of registered
mail, the taxpayer will be disadvantaged by this dual system. Since the dispute
system in essence follows the civil procedures as opposed to criminal, the
question arises if it is justifiable to have different principles applying to
the two parties.

Proposed solution /
recommendation:

Inequity will be
avoided if the date of receipt is regarded as date of delivery in all
instances.

2.3 Rule 6: Reasons for assessment

Problem statement:

Rule 6(5) requiring
SARS to provide reasons why the taxpayer was not provided with adequate reasons
to formulate an objection to an assessment, does not stipulate how these reasons
should be communicated to the taxpayer.

Proposed solution /
recommendation:

The rule should
clearly stipulate that SARS should be required to provide these reasons in
writing to the taxpayer.

2.4 Rule 7: Objection against assessment

Problem statement:

Section 3(4) of the Income Tax Act and
section 32 of the Value Added Tax Act subject a number of decisions to the
Chapter 9 dispute process. The preamble to the draft rules, as well as section
104 of the Tax Administration Act, make it clear that the dispute process
applies not only to objections to assessments but also to objections to
decisions. The amendment to Rule 7(1)(b) referring to ‘part or specific amount
of the disputed assessment' appears to cater for objections to assessments and
does not adequately provide for objections against decisions. Furthermore, from
a practical point of view, the eFiling system makes no provision for objections
other than objections to assessments.
However, it is the only form of objection at the disposal of an
individual or company as far as income tax is concerned.
The manual ADR forms are similarly designed
with only objections to assessments in mind.

Proposed solution /
recommendation:

As a decision may
not necessarily always involve a monetary amount, the provisions in the draft
rules need to be amended to cater for these situations. From a practical
perspective, clarity is required with regard to the manner and format in which
objections against decisions need to be handled and completed.

2.5 Rule 8: Request for supporting documents after
objection lodged

Problem statement:

Although Chapter 5 of the Tax
Administration Act permits SARS access to documents to ensure proper
administration of the Act, Rule 8(1) could be read so as to imply that SARS may
not request supporting documents from a taxpayer after the expiration of the 30
day period mentioned in that rule.

Proposed solution /
recommendation:

Clarity on whether
SARS may request supporting documentation after the expiration of the 30 day
period is required.

2.6 Rule 9: Decision on objection

Problem statement:

2.6.1 No recourse
is provided for the taxpayer should SARS not adhere to the time limits set out in
rule 9(1) and 9(2).

2.6.2 SARS is not
afforded the opportunity, on receipt of an objection, to alter an assessment by
issuing a reduced assessment or by withdrawing an assessment as was catered for
in the previous rules.

Proposed solution /
recommendation:

2.6.1 Recourse
similar to rule 6(8) should be provided for in rule 9 affording the taxpayer
the right to apply to the Tax Court (as set out in rule 52) in these
circumstances.

2.6.2 The rules
should be amended to afford SARS the opportunity to amend an assessment as
indicated above.

2.7 Rule 10: Appeal against assessment

Problem statement:

Rule 10(2)(c), 10(3), and 10(4) appear to
contain opposing views with regard to new grounds of objection.

Proposed solution /
recommendation:

Clarity needs to be
provided between the terms "new ground on which the taxpayer is appealing”
(rule 10(2)(c)), "a ground that constitutes a new objection” (rule 10(3)) and
"ground not raised in the objection” (rule 10(4)).

2.8 Rule 13: Notice of alternative dispute resolution

Problem statement:

No recourse is
provided for the taxpayer should SARS not adhere to the time limits set out in
rule 13(1).

Proposed solution /
recommendation:

Recourse similar to
rule 6(8) should be provided for in rule 13 affording the taxpayer the right to
apply to the Tax Court (as set out in rule 52) in these circumstances.

2.9 Rule 20: Proceedings before facilitator

Problem statement:

2.9.1 Specific provision should be made in rule 20(3) for the
proceedings to include parties convening by means of video conferencing and
teleconferencing.

2.9.2 No recourse is provided for the taxpayer should the facilitator
not adhere to the time limit set out in rule 20(7).

Proposed solution /
recommendation:

2.9.1 The rule
needs to be amended to provide for these circumstances that are a reality in
certain situations (such as the person is unable to walk etc).

2.9.2 Recourse
similar to rule 6(8) should be provided for in rule 20 affording the taxpayer
the right to apply to the Tax Court (as set out in rule 52) in these
circumstances.

2.10 Rule 32: Statement of Grounds Opposing Appeal

Problem statement:

Rule 31 makes it quite
clear that the appellant may not include in the statement of grounds of appeal
a ground of appeal that constitutes a new objection against a part or amount of
the disputed assessment not objected to under rule 7. Rule 32, however, merely
states that SARS may not include a ground that constitutes a novation of the
factual or legal basis of the disputed assessment.

Proposed solution /
recommendation:

Rule 32 should
categorically state that SARS is not permitted to raise a new item pertaining
to the assessment in dispute or a new basis for assessing the taxpayer to tax
which was not previously advised to the taxpayer.

2.11
Rule 44: Procedures
in Tax Court

Problem statement:

Section 102(2)
places the onus of proving whether an estimate under section 95 is reasonable
or whether the facts on which SARS based the imposition of an understatement
penalty on are reasonable, on SARS. Rule 44(1) does not cater for the situation
of estimation of assessments under section 95 of the Tax Administration Act.

Proposed solution /
recommendation:

SARS should be
required to commence the proceedings in such instances in respect of the
understatement penalty imposed under section 222(1) of the Tax Administration
Act.

2.12
Rule 52: Application
provided for under rules

Problem statement:

A taxpayer has to avail himself of this process (apply to a Tax
Court) in a number of instances listed in rule 52.
For example, in terms of rule 52(1)(c) a taxpayer
may bring an application if the period to lodge objection has not been extended
in terms of section 104(4).

But section 104(2)(a) provides that a decision under subsection (4)
not to extend the period for lodging an objection may be objected to and
appealed against in the same manner as an assessment.

The same principle applies to the extension of the period for the
submission of an appeal (section 107(2) and rule 52(1)(d).

Thus although the Tax Administration Act provides for a low-cost
remedy, the Rules seem to imply that a taxpayer is required to bring an
application to the tax court, although it is noted that rule 52 uses the word
‘may' and not ‘shall' or ‘must'.
This
procedure is obviously more expensive, time-consuming and requires a higher
level of professional intervention.

Proposed solution /
recommendation:

A cost effective
remedy to deal with the above situations should remain permissible but should ultimately
also be effective, thus negating the need to apply to the Tax Court.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.